iRhythm Holdings, Inc.

Thank you all for participating in today's call. Earlier today, iRhythm released financial results for the first quarter ended March 31st, 2022. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. These are based upon our current estimates and various assumptions and reflect management's intentions, beliefs, and expectations about future events, strategies, competition, products, operating plans, and performance. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our most recent annual and quarterly reports on Form 10-K and Form 10-Q, respectively, filed with the SEC. Also, during the call, we will discuss certain financial measures that have not been prepared in accordance with U.S. GAAP with respect to our non-GAAP and cash-based results, including adjusted EBITDA, adjusted operating expenses, and adjusted net loss. Unless otherwise noted, all references to financial metrics are presented on a non-GAAP basis. The presentation of this additional information should not be considered in isolation of, as a substitute for, or superior to results prepared in accordance with GAAP. Please refer to the tables in our earnings release and 10-Q for a reconciliation of these measures to their most directly comparable GAAP financial measures. This conference call contains time sensitive information and is accurate only as of the live broadcast today, May 5th, 2022. iRhythm disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Quinton Blackford, iRhythm's President and CEO.

Thank you, Lee. Good afternoon, and thank you all for joining us. Doug Devine, our Chief Operating Officer and Chief Financial Officer, and Dan Wilson, our EVP of Corporate Strategy and Development, join me on today's call. My prepared remarks today cover progress we've made throughout the first portion of 2022 and discuss the near and long-term growth initiatives for our business. I'll then turn the call over to Doug to provide a detailed review of our first quarter financial results as well as our updated guidance for 2022. Our first quarter results came in ahead of expectations across the board and demonstrate the value of an increased focus and discipline that we are driving into the business. We were pleased with our first quarter revenue performance growing by 24% year-over-year to $92 million fueled by strong unit volume growth, as well as the benefit of the improved Novitas pricing that went into effect January 1st. Furthermore, we were pleased with the improved operational discipline and efficient management of costs, resulting in improved gross margin and lower than anticipated spending. As a result, we are providing favorable updates to both our revenue and profitability expectations for the year, which Doug will share in a bit. We continue to make progress on the reimbursement front as we realize another positive step forward as NGS, the MAC that serves our suburban Chicago area and where one of our primary independent diagnostic testing facilities, or IDTFs, is located. They updated their payment rates for approximately $329 and $342 for the two main CPT codes that we use in our business, effective April 1st. We are pleased with this most recent update provided by NGS, which continues to demonstrate that the costs associated with delivering the ZOXT service and the value that it provides are being better understood. We will continue to engage with the other regional MACs on their internal review processes and will provide updates as appropriate. As it relates to national pricing, we expect that CMS will release its 2023 Medicare Physician Fee Schedule proposed rule in or around July of this year. This will be followed by an open comment period and final rulings, which have historically been communicated in the November timeframe and would then be effective January 1, 2023. We are continuing to fully participate and coordinate with our industry partners, stakeholders, customers, and medical societies on this process to establish fair and stable national CMS pricing for ZOXD moving forward, which we are confident can lead to increased access and improving care for all. We believe ZO offers the most complete ambulatory cardiac monitoring solution backed by the most advanced AI in the space so that providers can accurately diagnose patients more quickly and efficiently. We also took additional steps forward in building our leadership team, announcing last week that Dr. Mintu Tarakia will be joining iRhythm in the newly created role of Chief Medical Officer and Chief Scientific Officer. Mintu was one of the early adopters of Xeo and performed one of the first ever silent AF studies with Xeo. In addition to his clinical work, Mintu was the co-founder of the Stanford Center for Digital Health and is a seasoned operator who has led the development of virtual care and remote patient monitoring software for clinical trials, academic research, and commercialized healthcare products. MN2 will be responsible for guiding our innovation efforts and leading our research and evidence generation. I'm personally thrilled to have MN2 on board and look forward to having it hit the ground running. Coming back to the business performance, within our core U.S. market, we saw strong unit volumes and pricing performance during the quarter. Registrations rebounded nicely to record levels in March after a slow start to January due to the impact of the Omicron variant. We also saw continued momentum within new accounts, as the number of new account openings were up 15% in the fourth quarter of 2021. And while we were very pleased with the strength that we saw exiting March, we believe some of that strength may have been attributable to patient backlogs from December and January. We continue to believe that Xeo should be the gold standard in ambulatory cardiac monitoring, and the opportunity ahead of us in this core market alone is immense. Approximately 5.6 million ambulatory cardiac monitoring tests are prescribed annually in the US, but we estimate that less than 25% of those are for our clinically superior extended-wear monitors. Our data-driven AI and deep-learned algorithms are a significant differentiator from competitors, and we see ourselves increasingly as a provider of insights to our patients and customers within the larger digital health ecosystem. As part of this, we believe that our core market will only expand over time as we create new opportunities to impact prediction and prevention of disease, move deeper into primary care, and expand into additional use cases. The clinical superiority of Xeo remains a key reason we continue to increase our market share, and we are pleased to see the mounting clinical evidence continue to grow and further demonstrate how our innovative technology can be leveraged for the benefit of patients, clinicians, and patient care networks. At the recent ACC meeting in Washington, D.C., as well as the HRS conference in San Francisco this past weekend, we saw important clinical data presented highlighting ZOAT, ZOXT, and the ZO-WATCH. For ZOAT, research presented at ACC highlighted that monitoring with post-TAVR discharge can identify AFib, high-degree AV block, and supraventricular tachycardia in patients who are at risk for arrhythmic disorders. The results found the presence of AFib in nearly 25% of the study population, including the younger cohort within the study. Separately, data was also presented that demonstrated ZOAT was safely able to monitor and aid in the diagnosis of patients upon discharge from the ER, thus avoiding a hospital stay. This study estimated that the use of ZOAT saved this healthcare system approximately 136 inpatient hospitalization days. With ZOXT, we recently presented additional data that further supports movement into the asymptomatic and undiagnosed AFib market, Top line data from the GARD-AF study showed that the XeoService is a viable solution for the early detection and diagnosis of silent atrial fibrillation in moderate risk populations. Within the study, nearly 5% of the population had AFib detected within two weeks of monitoring. This further highlights the need to help undiagnosed populations effectively seek treatment before more serious problems can occur, therefore improving patient outcomes. And finally, at the recent HRS conference this past weekend, we announced exciting data on the XeoWatch, demonstrating our ability to detect arrhythmias using non-patch-based technology. The findings from our first prospective study were designed to evaluate the performance of the XeoWatch's PPG sensor and AFib context engine algorithm in detecting irregular rhythms in those at risk with having AFib. The data revealed that interval level sensitivity and specificity of our proprietary algorithm were comparable to our XeoXT patch. Moreover, PPG-derived AFib burden from the Xeo watch was an accurate measure when compared to the Xeo XT as a reference. The Xeo watch and the AI algorithms it uses are currently under 510 reviewed by the FDA and pending clearance. In addition to the further pursuit of clinical evidence demonstrating the value of Xeo, we are also committed to innovation. Underscoring that commitment, we are very pleased to announce that we have shipped the first batch of our next generation biosensor the Xeo Monitor for first patient use following regulatory clearance. This monitor will eventually replace Xeo XT while providing a platform that delivers a dramatically smaller form factor, resulting in an improved patient experience and a reduced cost profile with greater efficiencies for manufacturability and scalability without sacrificing our quality of service. Full-scale commercialization and conversion of this next generation device has been anticipated in 2023. Shifting to our strategy of international expansion, our goal is to establish Zio as a standard of care in international markets, much as we are doing in the U.S. We have been working on a strategic pathway towards continued commercial expansion in the U.K. and introduction into other countries over the next two to three years. Within the U.K., we continue to execute against the NHSX AI award in select NHS sites, as well as grow our business within the private payer markets. We expect to use the remaining portion of the AI award within 2022 and are working with individual NHS sites to secure local funding and ensure continued access to Zio while we continue our efforts to secure sustainable reimbursement within the NHS. In the meantime, we expect our UK business to grow more moderately. Beyond the UK, we are excited to announce that we will be commencing market access initiatives in Germany, France, the Netherlands, and Sweden in the coming months. directly 1.7 million ambulatory cardiac monitoring tests to our addressable market. As mentioned previously, we are also excited about the Japanese market, where there are more than 1.5 million ambulatory cardiac monitoring tests prescribed annually. We anticipate initiating the reimbursement and regulatory pathways within the next few months, which would put us on a timeline for commercial launch by the first half of 2024. We continue to believe there's a large opportunity to bring Xeo into international markets and are accelerating our efforts to initiate market access and commercial introduction. We look forward to sharing our milestones as these efforts progress. Turning to our strategy of expansion into adjacent markets, as noted earlier, we saw additional clinical data presented that further supports the move into the asymptomatic and undiagnosed AFib market. To capture this opportunity, we are building a targeted detection program and capabilities that will allow us to deliver a compelling product to payers as well as an engaging experience to undiagnosed and underserved patient populations. We are fully committed to providing access to valuable digital health tools to all patients who could benefit from them. And by harnessing the power of data-driven, deep-learned AI, we believe we can redefine the standard of care with earlier insights that predict and prevent disease. Our efforts with the Silent AF align well with these goals, and we look forward to sharing more details on these initiatives and other growth strategies at an investor day later this year. In closing, we have started 2022 very strong and are very confident in the sizable opportunities ahead of us to serve millions more patients. We see tremendous runway for growth within the core market that we serve today as we continue to shift the standard of care to Zio, the gold standard in this space. And we continue to invest in our mid and long-term growth initiatives that will leverage our technology platform into new geographies and new markets. I have never been more excited about the future that I see at iRhythm and we are intently focused on realizing our vision. I'll now turn the call over to Doug.

Thanks, Quentin. Our first quarter 2022 financial results demonstrated the strength of our business as revenue grew 24% year-on-year, 13% quarter-on-quarter. Registrations and new account onboarding continued solid growth, and new account sales again contributed strongly to our growth. Although the economic environment remains uncertain, we are pleased with the way 2022 has started. Taking a more detailed look at our first quarter financial results on a sequential basis, revenue increased 13% quarter on quarter from 82 million to 92 million. Growth in our average daily registrations was strong, increasing by about 13% during the first quarter as compared to 7% during the fourth quarter. We had strong growth in the number of new accounts onboarded, increasing by 15% from Q4 2021 to Q1 2022. Looking at new store, same store mix, new store defined as accounts that have been open for less than 12 months accounted for 55% of our year-over-year unit growth, up from 46% in the fourth quarter of 2021. Home enrollment was at 21% in the first quarter, flat from Q4 2021 levels. Turning our attention to the rest of the P&L, gross margin for the first quarter was 66.9%, a 4.2% increase from the gross margin of 62.7% in Q4 of 2021. Increases in volume and average selling prices coupled with a reduction in average unit cost all contributed to the increased gross margin during Q1 2022 versus Q4 of 2021. For the first quarter, operating expenses excluding restructuring were 83.7 million, flat compared to Q4 of 2021, and up 7% year over year. Sequentially, hiring and compensation expenses during the quarter were offset by milestone expenses to Verily that did not reoccur in Q1. We expect the next verily milestone to occur in 2023. During Q1, we incurred 26.6 million in restructuring charges, primarily associated with a reduction in size of our San Francisco facility to better align the company to the new remote working environment. Adjusted EBITDA of negative 4.8 million in Q1 2022 was up 12.5 million compared to Q4 21 adjusted EBITDA of negative 17.3 million. Cash and short-term investments declined 30.3 million from the fourth quarter of 2021 to 208.8 million. 2021 bonus payment, payroll taxes, 401 contribution, working capital and adjusted EBITDA losses consumed cash in the first quarter partially offset by the initial loan drawdown with Silicon Valley Bank on our amended debt facility. Accounts receivable increased by 8.9 million to 55.3 million from 46.4 million in Q4 2021, primarily driven by quarter-on-quarter increase in revenue. Adjusted net loss, which excludes restructuring-related expenses, was negative 23.7 million or a loss of 80 cents per share compared with a net loss of negative 27.8 million or 95 cents per share for the same period of the prior year. Finally, we amended our existing debt facility with Silicon Valley Bank to improve upon the pricing and terms of our prior facility. The amended credit facility is non-dilutive and consists of a term loan of up to 75 million and a revolving credit facility of up to 25 million. $35 million in the term loan was drawn down at closing to pay in full the approximately $18.5 million outstanding on the term loan under the prior credit facility and to fund working capital. The remaining $40 million of the term loan will remain available for us to draw through December 31, 2023, subject to applicable conditions. The revolving credit line availability is subject to a borrowing base comprised of our accounts receivables. The amended credit facility will mature March 1, 2027. Turning to guidance for 2022, we are increasing our expectation for full-year revenue to range between $410 million and $420 million, reflecting year-over-year growth of 27% to 30%. The increase in our guidance reflects our performance in the first quarter of 2022, as well as positive impact from the updated NGS pricing. As we currently have an IDTF in suburban Chicago, we expect to see a small positive impact to revenue starting in the second quarter and increasing into the second half of the year. We expect gross margin to be between 68% and 69% for the full year 2022. We expect adjusted operating expenses in the range of $375 million and $385 million to flat to our prior guidance. And we expect adjusted EBITDA to range between negative 15 million and negative 25 million. Our adjusted EBITDA for 2022 will exclude restructuring costs and stock compensation. And with that, Quentin, Dan, and I would like to now open the call for questions. Operator?